VSNL Buys Tyco's Subsea Network

Indian op pays fraction of build cost for Tyco's subsea network, but it still might not be a bargain

November 1, 2004

2 Min Read
VSNL Buys Tyco's Subsea Network

India's main telecom operator Videsh Sanchar Nigam Ltd. (VSNL) (NYSE: VSL) bought its way into the international subsea capacity market today, paying $130 million for Tyco International Ltd.'s (NYSE: TYC; London: TYI) global network (see VSNL Buys Tyco's Subsea Networks).

The move follows the carrier's award of an international license by the Federal Communications Commission (FCC). (See India's VSNL Wins FCC US Appoval.)

The purchase makes it one of the top three leading players in the international undersea capacity business, alongside Global Crossing Holdings Ltd. (Nasdaq: GLBC) and rival Indian operator Reliance Infocomm Ltd., which also bought a strong position in the market through its purchase of Flag Telecom (see FLAG Amalgamates With Reliance).

The two Indian operators have a tense history regarding the control of network capacity in and out of India, and engaged in a war of words about the issue earlier this year (see FLAG Hits Out at VSNL Monopoly).

So are they now direct competitors on the ocean floor? Not really, says TeleGeography Inc. senior research analyst Alan Mauldin. He says VSNL has acquired a strong position on the transpacific route, where it is the only player with terabits of capacity, while Flag has been very strong connecting Europe, the Middle East, and extending east into Asia, where it intends to build out further capacity (see Flag Flies After Subsea Market).

The analyst says the only routes where they overlap at present is running eastwards out of India towards Singapore and on the transatlantic connection, where Cable & Wireless plc (NYSE: CWP) holds a particularly strong position with its Apollo network.

The two players may compete more in the future as they expand their respective networks, says Mauldin, but the main concern for all the subsea players is whether they can make any money in this market.

He says that while VSNL may have acquired the Tyco network at a fraction of the original cost -- he estimates Tyco will have spent about $3 billion building its global network -- all subsea networks cost a lot to maintain and manage, and the cost of capacity at present is very cheap. "This may look like a good deal, buying a network at cents in the dollar," but that doesn't mean that VSNL will automatically make it profit in the international capacity business, says Mauldin.

— Ray Le Maistre, International News Editor, Light Reading

Subscribe and receive the latest news from the industry.
Join 62,000+ members. Yes it's completely free.

You May Also Like